Fox Corp's Live Content Fortress Meets Streaming Inflection: Why the Market Still Doesn't Get It (NASDAQ:FOX) - FOX Stock Research Report

## Executive Summary / Key Takeaways * Fox Corporation has built an unassailable moat around live news and sports content that commands 63-65% of cable news viewership and generates record political advertising revenue, creating pricing power that more than offsets industry-wide subscriber erosion and funds its digital transformation. * Tubi's achievement of profitability in Q1 2026—ahead of schedule—marks a critical inflection point, transforming a $1.1 billion revenue AVOD platform from a cash burn into a 20-25% margin contributor that reaches two-thirds of its audience outside the traditional cable bundle. * The launch of FOX One at $19.99/month represents a capital-efficient D2C hedge that targets cord-cutters without cannibalizing the core business, leveraging existing content rights to create a low-risk, high-optionality streaming asset with modest subscriber expectations. * Despite record FY2025 performance (17% revenue growth, 100% free cash flow growth) and a fortress balance sheet ($4.4B cash, $12B buyback authorization), FOX trades at a P/E of 13.1 and EV/EBITDA of 8.6, implying the market expects permanent profit decline—an overly pessimistic view that ignores the durability of live content and digital momentum. * The central risk-reward asymmetry hinges on two factors: whether legal overhangs (Smartmatic's $2.7B claim, Newsmax antitrust suit) create lasting financial liability, and whether FOX One's subscriber traction validates management's thesis that live content can profitably exist outside the bundle. ## Setting the Scene: The Live Content Survivor Fox Corporation, incorporated in 2018 and headquartered in New York, emerged from Walt Disney's (TICKER:DIS) acquisition of 21st Century Fox entertainment assets as a deliberately focused live content pure-play. This wasn't a divestiture of leftovers—it was a strategic separation that concentrated FOX on the two content categories that streaming has proven least able to displace: news and sports. While competitors chased scripted entertainment libraries to compete with Netflix (TICKER:NFLX), FOX bet that appointment viewing around live events would prove more durable and more valuable in the digital age. The business model is straightforward but powerful. FOX operates through two primary segments: Cable Network Programming (FOX News, FS1, FS2) and Television (FOX broadcast network, 29 owned stations, and the Tubi AVOD service). The Cable segment generates revenue through affiliate fees and advertising on must-have news and sports content. The Television segment monetizes broadcast advertising, retransmission consent fees from stations, and increasingly, digital advertising through Tubi. Corporate and Other houses the newly launched FOX One D2C service and studio operations. This positioning matters because it places FOX at the center of media's most important structural shift: the bifurcation of content into "live" and "on-demand." While scripted entertainment fragments across a dozen subscription services, live sports and news have actually gained value as scarce, communal experiences that deliver mass audiences in real-time. FOX's portfolio—anchored by FOX News's 63% cable news share and sports rights including NFL, MLB, college football, and IndyCar—represents a collection of assets that cannot be replicated without decades of brand building and billions in rights commitments. ## Technology, Products, and Strategic Differentiation: The Moat in Practice FOX News isn't just a cable channel; it's a pricing powerhouse that generates the highest first-quarter ad revenue in its history. Why? Because its 63% share of cable news viewership translates into a 65% share in primetime, making it the most efficient buy for advertisers seeking to reach news audiences. Management notes that FOX News CPMs are approximately half of broadcast networks, which creates a compelling value proposition that has attracted 350 new national clients this year. This pricing momentum isn't cyclical—it's structural. As competitors like MSNBC (TICKER:CMCSA) and CNN (TICKER:WBD) face double-digit audience declines, FOX News's share has marginally increased to 64% in total day and primetime, reinforcing its monopoly on right-leaning news viewers. The sports portfolio operates on a similar principle of scarcity. FOX's NFL coverage averaged almost 22 million viewers in September, a 12% increase representing the network's best start ever. America's Game of the Week ranked as TV's #1 show with 30 million viewers. This matters because live sports command premium advertising rates and generate "appointment viewing" that streaming services cannot replicate on-demand. The Super Bowl LIX broadcast generated over $800 million in gross advertising revenue—a record—while reaching 128 million viewers across platforms. The median age of Super Bowl viewers on FOX was 38, younger and more female than the broadcast audience, with 40% between 18-34. This demographic shift is critical: it proves that live sports on FOX can attract the cord-cutting generations that advertisers desperately want to reach. Tubi represents FOX's most important technological and strategic differentiator. With over 100 million monthly active users and 2.2% share of total U.S. television viewing, Tubi is the most-watched free ad-supported streaming service. Two-thirds of its audience is "cordless"—cord-cutters or cord-nevers—making it uniquely valuable to advertisers who cannot reach these viewers through traditional linear TV. The platform's library of over 300,000 movies and TV titles is the largest in the country, and its ad technology delivers stable pricing even as the connected TV market becomes "incredibly competitive." Tubi's 27% revenue growth in Q1 2026, driven by 18% increase in total view time, demonstrates that scale is translating into monetization. FOX One, launched in August 2025 at $19.99/month, extends this strategy into the subscription space without the capital intensity that doomed other D2C attempts. The service aggregates existing FOX news, sports, and entertainment content—no original programming, no incremental rights costs. This creates a pure-margin incremental revenue stream targeting the 2-3 million cord-cutters who want live FOX content but will never subscribe to a cable bundle. The ESPN (TICKER:DIS) bundle at $39.99/month further de-risks the launch by expanding the addressable market. With marketing as the primary incremental cost and modest subscriber aspirations in the low-to-mid single-digit millions, FOX One is a capital-efficient option on the D2C opportunity. ## Financial Performance & Segment Dynamics: Evidence of Moat Durability Fiscal 2025 was a record year by every metric: 17% revenue growth to $16 billion, 26% EBITDA growth to $3.6 billion, 39% adjusted EPS growth to $4.78, and 100% free cash flow growth to $3 billion. These aren't one-time spikes driven by cyclical events. While political advertising contributed over $400 million and the Super Bowl added $800 million, the underlying business showed structural strength. The Cable segment grew revenue 7% in Q4 FY2025 and 4% in Q1 FY2026, with EBITDA up 7% in both periods. This growth occurred despite industry subscriber declines running under 7%, proving that pricing power from affiliate renewals is more than offsetting volume losses.

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The Television segment's performance reveals the Tubi inflection most clearly. In Q1 FY2026, segment revenue grew 5% despite the absence of political advertising that had boosted prior year comps by approximately $100 million. Advertising revenue still increased 6%, driven by Tubi's 27% growth and strong NFL pricing. This mix shift is enormously significant: digital advertising through Tubi carries higher margins than political ads and is more sustainable. Segment EBITDA grew 7% even as the company invested in entertainment programming and digital content costs. The absence of WWE (TICKER:TKO) and UEFA Euros rights payments helped margins, but the underlying story is that Tubi's profitability is beginning to offset linear headwinds. Corporate and Other segment EBITDA worsened, with losses increasing by $62 million (an 86% increase) to -$134 million, primarily due to FOX One launch costs. This is the cost of the D2C optionality, and it's modest relative to the $800 million in Cable segment EBITDA. Management can "toggle up and down" marketing spend based on subscriber acquisition costs, making this a flexible investment rather than a fixed cost burden. The $350 million estimated annual investment in digital initiatives (Tubi, FOX One, Latin America) represents just 2% of revenue—a small price for transforming the business model. The balance sheet provides the financial flexibility to execute this strategy. With $4.4 billion in cash and an unused $1 billion credit facility, FOX has ample liquidity for investments and shareholder returns. The company has generated $10.6 billion in free cash flow since fiscal 2020, representing 37% of its current enterprise value.

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Debt has been reduced from $8.5 billion to $7.6 billion while cash increased, resulting in net debt of $3.2 billion. This fortress balance sheet enabled the Board to authorize an additional $5 billion in buybacks in August 2025, bringing total authorization to $12 billion, with $5.15 billion remaining as of September 30.

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Capital allocation demonstrates management's confidence. The company repurchased 4 million shares for $250 million in Q1 FY2026 and announced a $1.5 billion accelerated share repurchase to be completed in the second half of FY2026. Notably, the program will buy $800 million of Class B shares, which trade at a 10-11% discount to Class A, creating an immediate value uplift. Cumulatively, FOX has returned $6.9 billion to shareholders through buybacks since inception, reducing share count and boosting per-share metrics. The semi-annual dividend of $0.28 per share yields 0.96% with a conservative 12.36% payout ratio, leaving ample room for growth. ## Outlook, Guidance, and Execution Risk Management's guidance for fiscal 2026 reveals a company navigating the transition from linear to digital with unusual confidence. Lachlan Murdoch describes "the most robust advertising market we have seen for some time," with scatter pricing up 50% over upfront rates and direct response pricing up 30% on FOX News. This pricing power isn't accidental—it reflects the scarcity value of live audiences in an increasingly fragmented media landscape. The company expects continued total distribution revenue growth for the full year, driven by the Cable segment's affiliate renewals, while Television affiliate revenue will be flat due to timing of rate increases. Tubi's trajectory is the most important variable for margin expansion. Management expects long-term margins of 20-25%, making it a meaningful EBITDA contributor in the medium term. The Q1 profitability achievement will "moderate" the overall digital investment level, with more substantial improvement weighted to the second half of FY2026. This suggests the heavy lifting of building a streaming platform is largely complete, and the business is entering a harvest phase. The Super Bowl in Q3 FY2026 will drive marketing investment but also user acquisition, creating a flywheel effect where major live events feed Tubi's growth. FOX One's modest aspirations—low-to-mid single-digit millions of subscribers—de-risk the D2C launch. Management explicitly states they "do not want to lose a traditional cable subscriber to FOX One," positioning it as purely additive. The ESPN (TICKER:DIS) bundle at $39.99 expands the addressable market while sharing customer acquisition costs. This approach avoids the trap that ensnared Walt Disney (TICKER:DIS) and Warner Bros. Discovery (TICKER:WBD), where D2C services cannibalized higher-margin linear revenue. FOX's approach is surgical: capture cord-cutters without undermining the bundle that still generates the majority of profits. The advertising outlook remains strong across key verticals: pharma, financial services, and tech (driven by AI companies). Tubi's upfront volume grew 35% year-over-year while holding rates stable, a remarkable achievement in a competitive CTV market. FOX Sports secured over $2 billion in upfront commitments even excluding the Super Bowl, while news scatter pricing is up 54% above upfront. This pricing momentum suggests the moat is widening, not narrowing. Execution risks center on three areas. First, FOX One must prove it can attract cord-cutters without cannibalizing linear subscribers. Early subscriber trends "exceeded expectations," but the sample size is small. Second, sports rights renewals could pressure margins if inflation continues. The IndyCar investment and FIFA World Cup rights suggest FOX is willing to pay for strategic assets, but discipline is required. Third, the legal overhang from Smartmatic and Newsmax could create financial liability or management distraction, though management believes these suits are "without merit." ## Risks and Asymmetries: What Could Break the Thesis The Smartmatic defamation lawsuit seeking $2.7 billion in damages represents the most material legal risk. A hearing on summary judgment is scheduled for December 2, 2025, with trial expected in early 2026. FOX states it "continues to believe the Smartmatic and other pending lawsuits alleging defamation or disparagement are without merit," but also acknowledges that "there can be no assurance that the ultimate resolution of these pending matters will not have a material adverse effect." The company has not recorded a loss provision, indicating legal counsel views the risk as remote, but a adverse verdict could exceed the company's $4.4 billion cash position and force asset sales or dilutive financing. The Newsmax antitrust lawsuit, while initially dismissed on procedural grounds, reveals competitive vulnerabilities. Newsmax alleges FOX maintains an "illegal monopoly" in right-leaning pay TV news through "exclusionary schemes" that pressure distributors. Internal communications cited from the Dominion case show FOX viewed Newsmax as a "significant competitive threat." This suggests FOX's distribution agreements may contain restrictive clauses that could attract regulatory scrutiny. While FOX's spokesperson dismisses Newsmax as unable to "sue their way out of their own competitive failures," the lawsuit exposes the aggressive tactics required to maintain 63% market share. Subscriber erosion remains a structural headwind, though management notes "reduced subscriber erosion" for three consecutive quarters, with declines "under 7%." The emergence of "skinny bundles" helps, but the long-term trend is clear: the traditional cable bundle is shrinking. This is significant because 51% of FOX's revenue still comes from distribution fees tied to MVPD subscribers. While pricing increases have offset volume losses so far, there is a mathematical limit to how much affiliates will pay for a shrinking audience. The risk is nonlinear: at some point, the bundle could unravel rapidly, accelerating subscriber losses beyond management's ability to price through them. Carriage disputes reveal the tension in FOX's distribution strategy. The August 2025 YouTube TV (TICKER:GOOGL) negotiation, where FOX faced removal before a short-term extension, shows that even deep-pocketed virtual MVPDs are pushing back on rate increases. YouTube TV claimed FOX was "asking for payments that are far higher than what partners with comparable content offerings receive." This suggests FOX's pricing power, while strong against traditional cable, may face limits in the streaming distribution channel that represents future growth. The FCC Chairman's intervention indicates regulatory risk if FOX is perceived as abusing market power. The Venu sports streaming joint venture cancellation highlights strategic constraints. FOX, Warner Bros. Discovery (TICKER:WBD), and Walt Disney (TICKER:DIS) abandoned the planned sports streaming service because "legal distractions around the business became increasingly difficult to bear." This demonstrates that even with must-have sports content, FOX cannot easily bypass distributors to reach consumers directly. The legal and contractual complexity of sports rights makes pure D2C sports economically challenging, reinforcing why FOX One's modest approach—aggregating existing rights rather than creating exclusive content—is the only viable path. ## Valuation Context: Discounted for a Decline That Isn't Coming At $58.26 per share, FOX trades at 13.1 times trailing earnings and 8.6 times EV/EBITDA, with a price-to-free-cash-flow ratio of 10.3. These multiples place FOX at a significant discount to media peers: Walt Disney (TICKER:DIS) trades at 15.3 times earnings and 11.7 times EV/EBITDA, while Comcast (TICKER:CMCSA) trades at 4.4 times earnings but carries a lower-quality broadband business. Warner Bros. Discovery's (TICKER:WBD) 126 P/E reflects its struggles, not strength. Paramount (TICKER:PARA) trades at a negative P/E due to losses. Forbes's analysis highlights the disconnect: FOX's price-to-economic book value (PEBV) {{EXPLANATION: PEBV,Price-to-Economic Book Value (PEBV) is a valuation metric that compares a company's market price to its economic book value, which is derived from its Net Operating Profit After Tax (NOPAT) and Return on Invested Capital (ROIC). A PEBV ratio below 1.0 implies the market expects a permanent decline in NOPAT.}} ratio of 0.8 implies the market expects NOPAT to permanently decline 20% from fiscal 2025 levels. This is "overly pessimistic" for a company that just grew NOPAT at a 5% CAGR since 2020 while improving ROIC from 17% to 19%. The market appears to be pricing FOX as a melting ice cube linear TV business, ignoring that Tubi is now profitable and FOX One adds D2C optionality. The valuation metrics support a more optimistic scenario. If FOX maintains its 19% ROIC and grows NOPAT at just 1% annually through 2035, the stock would be worth $82 per share, representing 39% upside. If NOPAT declines 2% annually, the stock is worth $59—essentially flat from current levels. The risk-reward is skewed positively: the downside case is priced in, while the upside case requires only modest growth and successful execution of the digital strategy. The FanDuel option provides additional upside not reflected in traditional metrics. The 18.6% option, exercisable through 2030, has an intrinsic value of $2.8 billion based on current consensus valuations. This represents over 10% of FOX's market cap in contingent value that the market largely ignores. While management is taking a deliberate approach to licensing in 26 states, the option provides a free call option on the growth of legalized sports betting. Capital returns enhance the valuation case. The 0.96% dividend yield is modest, but the 12.36% payout ratio leaves room for growth. More importantly, the $12 billion buyback authorization represents 44% of the current market cap. With $5.15 billion remaining and a $1.5 billion accelerated repurchase planned, FOX is aggressively reducing share count at what management believes are attractive prices. The decision to buy discounted Class B shares demonstrates capital allocation discipline. ## Conclusion: The Live Content Premium Is Real, the Digital Transition Is Working, and the Price Is Wrong Fox Corporation has achieved what media bears said was impossible: it has maintained growth and profitability in linear television while building a profitable streaming business and launching a capital-efficient D2C service. The 63% cable news share isn't just a rating—it's a pricing moat that generates record advertising revenue and offsets subscriber erosion through affiliate fee increases. Tubi's Q1 2026 profitability proves that FOX can compete and win in streaming without destroying margins. FOX One's modest launch strategy avoids the cannibalization trap that snared competitors. The market's valuation at 13 times earnings and 0.8 times PEBV reflects a fundamental misunderstanding of FOX's business model. Investors see a traditional broadcaster facing cord-cutting headwinds, while FOX is actually a live content fortress with growing digital optionality. The $3 billion in free cash flow generated in FY2025, the $4.4 billion cash position, and the $12 billion buyback authorization demonstrate financial strength that peers like Warner Bros. Discovery (TICKER:WBD) and Paramount (TICKER:PARA) cannot match. The investment thesis hinges on two variables. First, can FOX maintain its news and sports pricing power as the bundle continues to shrink? The evidence suggests yes—scatter pricing up 50% and direct response up 30% indicate advertisers value live audiences more, not less, in a fragmented market. Second, will legal overhangs from Smartmatic and Newsmax create material financial liability? While possible, management's track record of resolving disputes and the lack of loss provisions suggest this risk is manageable. For investors, FOX offers an asymmetric risk-reward profile. The downside appears limited by a valuation that already assumes permanent profit decline, while the upside includes Tubi's margin expansion, FOX One's D2C optionality, and the FanDuel option. In a media landscape where content is increasingly commoditized, FOX's live content moat is becoming more valuable, not less. The market hasn't recognized this yet, creating an opportunity for patient investors to own a high-quality, cash-generating business at a discount to intrinsic value.